Bill-and-Hold Arrangement
Definition
A transaction in which a seller invoices a customer for goods that remain physically on the seller's premises at the customer's request. Legitimate when specific criteria are met (customer request, identified goods, scheduled delivery); fraudulent when the customer request is fabricated or coerced.
- Definition
- Seller invoices, goods stay on seller's premises
- Legitimate criteria
- Buyer request, identified goods, scheduled delivery
- Fraud indicator
- Fabricated or coerced buyer request
- Audit area
- Revenue recognition fraud detection
Common questions
How would an auditor test whether a bill-and-hold transaction is genuine?+
By corroborating the buyer's request independently, such as through direct confirmation with the customer, checking that goods are segregated and ready for shipment, and confirming a fixed delivery schedule rather than an indefinite hold.
Why do companies use bill-and-hold arrangements to commit fraud near period-end?+
Recording the sale before physical delivery lets a company book revenue in the current reporting period even though the underlying transaction has not economically completed, inflating reported results for that period.
Related terms
- Bill-and-Hold
- An arrangement in which a seller bills a customer but retains physical possession of the product. Revenue recognition depends on control and...
- Channel Stuffing
- Excessive shipments to distributors or other intermediaries, sometimes used with concealed terms to inflate revenue. Whether recognition is improper depends on the...
- Days Sales Outstanding (DSO)
- Days sales outstanding estimates the collection period by comparing receivables with average daily relevant sales over a stated period. Definitions and inputs...
- Fictitious Revenue
- Fictitious revenue is an entry representing a sale or earning event that lacks the claimed economic substance. Investigators test contracts, delivery, customer...
- IFRS 15 / ASC 606
- The converged international (IFRS 15) and US (ASC 606) standards that replaced predecessor revenue rules from 2018. Both apply a five-step model:...
- Performance Obligation
- Under IFRS 15 and ASC 606, the distinct promise to transfer a good or service to a customer. Revenue can only be...
- Premature Revenue Recognition
- Premature revenue recognition records revenue before the applicable reporting requirements are satisfied, potentially shifting results between periods. Investigators examine contracts, performance, control...
- Round-Tripping
- A circular transaction in which cash or assets flow between two or more related parties so that each records revenue without any...
- Side Letter
- An informal or undisclosed written agreement between a buyer and seller that modifies the terms of the primary contract. Side letters are...